Google SHOCK! Snaps up Motorola phone biz for $12.5bn

Are you a Droid handset maker? You were

Google has made its largest-ever acquisition, and biggest corporate gamble, by splashing out $12.5bn for Motorola's phone division, Motorola Mobility. The deal puts Google into the hardware business in a serious way – and into direct competition with licensees of its Android operating system, who woke up this morning thinking they were Google's business partners.

Google will pay $40 per share in cash – a premium of 63 per cent over the trading price – to grab itself a hardware manufacturer. The deal is subject to regulatory approval, which may not all be plain sailing, but Google hopes to wrap up the deal by next spring. It dwarfs Google's previous largest acquisition, DoubleClick.

Google recently lost out in a patent auction for networking IP, one it didn't appear to take seriously. Perhaps this explains why it was behaving so childishly. Or perhaps Google realised what a serious issue it is. After losing the Nortel auction, it went out and acquired $1bn worth of IBM patents. We shall find out which it is, eventually.

The deal represents a Houdini escape for Motorola, which has been bleeding red ink for much of the past four years. Motorola split the phone business off into an independently traded stock last year, and in its most recent quarter [transcript] reported earnings of $3.3bn, up 28 per cent year on year.

But what happens to Android? Buying Motorola might buy Google some IP, but it also brings with it a whole heap of new problems.

"Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community," writes Android chief Andy Rubin in the canned statement. "We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices."

But once Google has a preferred hardware partner that it owns outright, it is hard to see why its former partners – now rivals – would wish to continue with Android.

Expect to hear a splashing sound as dozens of OEMs dump their green plastic robots overboard. But where will they go? ®